PULSE ON THE LMR MARKET - Lara-Murphy Reporting

LMR Building The 10%

SEPTEMBER?2012

PULSE ON THE

MARKET

QE 3000 U.S. Losing Ground

Fisher Fretting Krugman Sweating

Police State Page 4

Why Do People

Obey

the Government?

Page 13

Enemy of the

Warfare State

Interview with Robert Higgs

Page 20

Why

Dave Ramsey Is Wrong

On Whole Life

Page 6

LARA-MURPHY

REPORT

L M R September 2012

Bring a Privatized Banking

Seminar to your city.

Present the powerful combination of

Austrian Economics, The Sound Money Solution & The Infinite Banking Concept

to your Special Group

? Demystifies Fractional Reserve Banking ? Learn how you can personally secede from our crumbling monetary regime and improve your financial future. ? Sound economic reasoning with a sound private strategy to direct the individual toward the escape exit. ? Learn the warning signs of a coming crash and the steps you need to take to avoid them.

3 Speaker / Authors from the Austrian School of Economics

L. Carlos Lara Robert P. Murphy, Ph.D. Paul A. Cleveland, Ph.D.

3 Dynamic, Informative, Inspirational and Educational Hours

Inquire directly with Carlos Lara 615-482-1793, or Robert P. Murphy 212-748-9095,

or e-mail us at info@

1 L M R September 2012 This Month's Features

13

6

20

Why do people

obey the gov't?

BY L. CARLOS LARA At times it seems a corrupt government is too powerful to resist. But the government only has the power we all give it. Etienne De La Boettie shows the importance of ideas.

Why Dave

Ramsey Is Wrong

BY R O B E RT P. M U R P H Y Dave Ramsey constantly plugs the "buy term, invest the difference" line. Here's what his analysis misses.

Enemy of the

Warfare State

INTERVIEW Dr. Robert Higgs has made a career analyzing how the government expands its powers during economic and military crises. His outlook for America is not good.

In Every Issue

3

4

24

Dear Readers

Lara-Murphy Report

Historically it was capitalism that turned serfs into the middle class. Growing government threatens to interrupt this engine of prosperity and civilization. Education is thus more important than ever.

Economic Deep End

Pulse on the Market

QE 3000 ? U.S. Losing Ground ? Fisher Fretting ? Police State ? Krugman Sweating

One More Thing

Events And Engagements

Learn more in person from Lara, Murphy, and other Austrian economists, at these upcoming appearances.

Overview

2 L M R S eptembe r 2 0 1 0

ABOUT LARA & MURPHY

L. Carlos Lara manages a consulting firm specializing in corporate trust services, business consulting and debtorcreditor relations. The firm's primary service is working with companies in financial crisis. Serving business clients nationwide over a period of three decades, these engagements have involved companies in most major industries

including, manufacturing, distribution and retail. Lara incorporated his consulting company in 1976 and is headquartered in Nashville, Tennessee.

He married Anne H. Browning in 1970. Together they have three children and five grandchildren.

Dr. Robert P. "Bob" Murphy received his Ph.D. in economics from New York University. After teaching for three years at Hillsdale College, Murphy left academia to work for Arthur Laffer's investment firm. Murphy now runs his own consulting business and maintains an economics blog at . He is the author of several economics books for the layperson, including The

Politically Incorrect Guide to the Great Depression and the New Deal (Regnery, 2009).

Murphy is an adjunct scholar with the Ludwig von Mises Institute. He lives in Nashville, Tennessee with his wife and son.

LMR L. Carlos Lara Editor in Chief

Dr. Robert P. Murphy

Executive Editor

Anne B. Lara Managing Editor Stephanie Long Design Director

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READERS

STATUS: LMR staff and its contributors warrant and represent that they are not "brokers" or to be deemed as "broker-dealers," as such terms are defined in the Securities act of 1933, as amended, or an "insurance company," or "bank."

LEGAL, TAX, ACCOUNTING OR INVESTMENT ADVICE: LMR staff and its contributors are not rendering legal, tax, accounting, or investment advice. All exhibits in this book are solely for illustration purposes, but under no circumstances shall the reader construe these as rendering legal, tax, accounting or investment advice.

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LICENSING & REPRINTS: LMR is produced and distributed primarily through the internet with limited numbers of printings. It is illegal to redistribute for sale or for free electronically or otherwise any of the content without the expressed written consent of the principle parties at United Services & Trust Corporation. The only legal audience is the subscriber. Printing LMR content for offline reading for personal use by subscribers to said content is the only permissible printing without express written consent. Photo's are from various public domain sources unless otherwise noted.

3 L M R S eepp tt ee mbbee r 2 0 1 2

Dear Readers

Dear Readers,

The buying and selling of goods, along with their interlocking activities of production and distribution, occurs every second of every day and in an indecipherable number of times throughout the world. It boggles the mind to contemplate the size and complexity of this awe aspiring mechanism--the market economy.

At the center of this enormous activity is the buying public, but where did it come from? How did this powerful force come to be? What are the origins of the consumer?

Are these not the slaves and serfs of long ago? Were these not at one time the beggars and paupers of history? In fact these same masses of people were literally transformed, not by science and technology, but by the adoption of the free enterprise principle of laissez-faire. They became the buying public. The early entrepreneurs and industrialists came from this very same stock of people except they lived modestly, spent only a fraction of their earnings for their households and plowed the remainder of their savings back into meeting the growing demands of the common man. Together, the businessman and the consumer raised everyone's standard of living to heights never dreamed of in earlier ages.

The market economy, however, is not simply mass production. Within it there is an overpowering tendency to put to work the most efficient means of satisfying the consumer's most urgent needs--thus it is self-regulating. When government extends its power over production whereby it dictates what should be produced, when it should be produced and in what quantity and quality, the government has embarked upon a treacherous path of destroying economic life. At the heart of this form of government policy is only confiscation and distribution.

This is why educating ourselves in Austrian economics is crucially important. It can help us see through this insanity and teaches ways to secede from government's increasingly tyrannical grip. This is exactly how Privatized Banking was formulated. Equally important should be the sharing of this concept with our families, neighbors and business associates. In an age when all of our freedoms are being disregarded and economic doors are being slammed shut, Privatized Banking offers businesses and households a peaceful way of escape.

Yours truly,

Carlos and Bob

"It is the masses that determine the course of history, but its initial movement must start with the individual."

- How Privatized Banking Really Works

Lara-Murphy Report

4 L M R September 2012

Pulse on the Market

Recent developments that may be of interest to readers of the Lara-Murphy Report...

QE 3000

Fed Announces Indefinite QE

The big financial news this month of course has been the Fed's announcement of open-ended purchases, dubbed "QE3" by the pundits. Specifically, the Fed announced that in addition to its other programs, it would begin purchasing $40 billion of mortgage-backed securities (MBS) per month, until such time as the Fed thought the economy could stand on its own. There were two subtle changes in this policy, compared to previous ones. First, the Fed's new program is indefinite; they didn't give a total dollar figure for how much they were committing to spend. Second, the Fed said that it would leave the accommodation in place well into the economic recovery. Most analysts (even those who applauded the move) thought this was Bernanke's wink-wink way of telling the markets that the Fed would be OK if price inflation got above the official 2% comfort zone. In other words, Bernanke was trying to gently tell investors--without giving the Ron Paul crowd an explicit sound bite to hammer him with--that they were going to be less vigilant on containing price inflation, that bringing down unemployment was now more important.

We could devote a whole issue to this, but briefly: This is simply a disaster. The Fed is literally trying to print its way out of a recession. This is exactly what Greenspan did after the dotcom crash, and we all know how well that turned out. What is particularly disastrous about this latest announcement is the choice of MBS as the asset class. Not only is this an attempt to reflate the housing sector--the cause of the last crash--but it represents a major shift in standard central bank policy. For good or ill, central banks typically bought government securities. Now we have the precedent of a small group of unaccountable officials who are able to create tens of billions of dollars per month and buy unwanted assets from people in the private sector. This is an extraordinary amount of power at the disposal of Fed officials, without even the ultimate check of being able to vote them out at the next election.

Police State

US Exporting Rule of Law to Afghanistan?

Some readers may be surprised at the sentiments in this month's interview with Bob Higgs, who has given up hope for the United States. We (Lara and Murphy) plan on sticking around, to either save or go down with the ship. But Higgs' position is not as farfetched as it may first sound: A September 20 article in the New York Times, "Progress Seen in Resolving U.S.Afghan Dispute Over Detainees," is downright chilling. It explains that there was a snafu in the ongoing process of outsourcing U.S. counterterrorism activities to the Afghans, because the Afghan Constitution and legal system don't allow their government to simply hold prisoners indefinitely, without at least charging them with a crime, let alone convicting them of it. Since that's exactly what the U.S. government is currently doing with many prisoners it claims are terrorists--in some cases, holding them for years without even charging them with a crime or providing actual evidence of their wrongdoing--this presented a problem. We understand our readers have differing views on how best to protect Americans from further terrorist attacks, but surely we can all agree that it is a bad sign when prisoners in Afghanistan have more legal protections from their government than in the United States.

Pulse on the Market

5 L M R September 2012

Pulse on the Market

Recent developments that may be of interest to readers of the Lara-Murphy Report...

US Losing Ground

US downgraded to 18th on Economic Freedom Index

For years, the Fraser Institute--a free-market think tank in Canada--has published a ranking of the world's countries based on economic freedom. Back in 2000, the U.S. ranked #2. By last year, it had fallen to #10. And this year (the 2012 ranking), it fell a whopping eight spots to #18. Things are not looking very bright in the short run, but Carlos explains in his article this month why we must not give up.

Fisher Fretting

Dallas Fed Prez Worried About Inflation

Not everybody at the Fed is nuts. Dallas Federal Reserve President Richard Fisher has publicly warned that QE3 is raising (price) inflation expectations, and that policymakers need to tread very carefully; once the genie gets out of the bottle, it will be hard to put it back in, as the late 1970s showed.

A standard measure of "the market's" expectation of future price inflation is to look at the spread between regular Treasury securities and TIPS (Treasury Inflation Protected Securities) of the same maturity. Since TIPS bonds have a built-in adjustment for rising prices--where the principal on the bond is adjusted upward with changes in official CPI--the yield on TIPS are supposed to represent the "real interest rate" on very safe assets, whereas the regular Treasury yield on a bond of the same maturity is supposed to represent both the real interest rate and the required inflation premium. Hence, taking the nominal minus the TIPS yield, gives a back-of-the-envelope estimate of what bond traders think future CPI hikes will be. (There are all sorts of technical caveats but we don't want to induce a coma in our readers.)

By this metric, QE3 has caused expected price inflation to surge. The estimate for inflation over the next five years went from about 1.9% in early September, to 2.4% right after the QE3 announcement. (It then fell back down to about 2.2%.) We still think these estimates in an absolute sense are off--we expect price inflation to be more severe in the coming years. But just as a relative measure, it shows that everybody recognizes that printing more money out of thin air causes the dollar to sink in value.

Krugman Sweating

More Outlets Pick Up the Krugman Debate

Finally, a shameless plug: One of us (Murphy) has a long-standing debate challenge to archKeynesian Paul Krugman. The trick is, people who want to see the debate can make a pledge (which isn't charged to your credit card unless the debate actually happens) to a third-party site, the proceeds of which go to a food bank in NYC. Recently blog posts at FreedomWorks and then Breitbart picked up the story, in which there is currently some $73,000 that would go to the food bank, if only Krugman would debate Murphy. Alas, Krugman has publicly said he will not give a platform to Austrians wanting to make economic policy into a circus. Full details at .

Pulse on the Market

6 L M R S eE pP tT eE mM bB eE rR 2 0 1 2

MaY 2012 L M R 6

Why

Dave Ramsey

Is

WRong

About Whole Life Insurance

by Robert P. Murphy

Why Dave Ramsey Is Wrong About Whole Life

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